- I wish to purchase but I don’t have the cash to pay a deposit
- What is a deposit bond
- What other options do I have to purchase without a cash deposit
Buying property without a cash deposit
If you wish to purchase a property you are required to pay a deposit in order to secure it and have the property taken off the market. A purchaser must pay a deposit upon signing a Contract for Sale. This is typically held by the real estate agent in their trust account until settlement is completed. However, contrary to popular belief, the deposit does not need to be paid in cash. There are other options for paying a deposit such as using equity and obtaining a short-term deposit bond, long term deposit bond, bank guarantee, guarantor loans or if selling using the deposit paid by your purchaser as a deposit on a further purchase.
Can you get a loan with equity?
If you already own property, you can use the existing equity you have in that property in order to obtain a loan for a new purchase. You can then secure the purchase by having your broker or conveyancer obtain a short-term deposit bond for the deposit amount required to be paid to exchange on the property. There is a minimal fee to obtain the bond which is often less than the interest that could be earned on a cash deposit.
How do secure a deposit bond without equity?
You can also obtain a deposit bond without equity if you can provide evidence that you can pay the purchase price at completion. This allows you extra time in order to accumulate the required funds as well as not tying up the funds you currently have.
How does a bond deposit work?
The deposit bond is basically a substitute for a cash deposit and guarantees the vendor the deposit amount in the event that the purchaser does not settle on the land.
You will need to have your conveyancer make a request to the seller/vendor requesting them to accept a deposit bond on exchange.
Using the deposit from sale for purchase
Can I use my buyer’s deposit as part of my deposit?
Within the special conditions of a Contract for Sale the vendor can include a clause which is commonly known as a “Release of Deposit” clause, this allows the vendor access to the deposit funds paid by the purchaser prior to settlement and they can then use the funds as a deposit to purchase a property.
One must keep in mind that any release of deposit can only be released once, and no further release is possible. For example, if a vendor uses the funds from a release of deposit as the deposit for another property purchase, then the vendor of the second property being purchased is not entitled to have those deposit funds further released. A deposit can only ever be released or accessed prior to settlement once.
Using A Bank Guarantee
What is a bank guarantee when buying a house?
If you have sufficient assets your bank may provide a Bank Guarantee which is essentially a document provided by your bank in which the bank undertakes or guarantees that the funds will be paid. This allows you to have your funds with the bank as security and not “tied up” elsewhere. Once the settlement is completed the bank will release the security.
Please note the above advice is general only and is specific to the individual Contract in question.
For further clarification on the above, please feel free to phone me to discuss.
ABOUT CHRISTINE BASSETT:
Christine is a Licensed Conveyancer and Justice of the Peace at Coutts’ Narellan office. Since joining Coutts Lawyers & Conveyancers in 2013, Christine quickly immersed her interest in the property and has since completed studies of Conveyancing Law and Practice at Macquarie University; and is accredited with the Australian Institute of Conveyancers NSW.
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This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss, or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.